(The opinions expressed here are those of the author, a
columnist for Reuters.)

By Clyde Russell

LAUNCESTON, Australia Nov 29 Saudi Arabia's
problems run far deeper than trying to cobble together a deal
with fellow OPEC members to curb crude oil output in order to
bolster prices.

About two-thirds of Saudi Arabia's oil exports head to Asia,
and the kingdom's struggles in the region's two biggest
importers, China and India, are symptoms of its wider issues in
crude markets.

While Saudi Arabia has been increasing the total volume of
crude it ships to China and India, it has steadily been losing
market share, something that is likely of deep concern given
that much of the current and future growth of oil demand is
dependent on these two countries.

Saudi Arabia is likely going to have re-think its
long-standing practice of selling oil via fixed contracts and
embrace a move to a far larger proportion of spot cargoes and
flexible pricing.

In the first 10 months of the year, China imported 42.72
million tonnes of oil from Saudi Arabia, equivalent to about
1.03 million barrels per day (bpd).

This represented an increase of 0.67 percent from the same
period in 2015, in other words Saudi Arabia's exports to China
are largely steady.

The problem is that China's total oil imports are up 13.6
percent in the first 10 months of 2016, and all of Saudi
Arabia's competitors have been cashing in.

China's imports from Russia have gained 27 percent to 42.83
million tonnes, slightly more than those of Saudi Arabia and
making Russia the top supplier.

China's imports from Iraq have gained 14.7 percent, those
from Iran 15.7, from Angola 12.1 percent and Oman 8.1 percent.

Saudi Arabia's share of China's oil imports was 13.7 percent
in the first 10 months of the year, down from 15.1 percent in
2015, while Russia's share has gained to 13.7 percent from 12.6
percent.

It's not much better for Saudi Arabia in India, Asia's
second-biggest oil importer.

Saudi Arabia supplied 830,400 bpd to India in the first 10
months of the year, up 6.8 percent from the same period in 2015,
according to data compiled by Thomson Reuters Supply Chain and
Commodities Research.

The problem is that Iraq supplied 783,900 bpd in the first
10 months, up 24 percent, while Iran shipped 456,400 bpd, up a
massive 114.6 percent as the Islamic Republic returned to the
market after the lifting of Western sanctions against its
nuclear programme.

In the first 10 months of the year, Saudi Arabia's share of
Indian imports was 19.4 percent, down from 19.7 percent in 2015.

Iraq's share was 18.3 percent in the first 10 months, up
from 16.1 percent in 2015, while Iran's was 10.6 percent,
surging from 5.2 percent in 2015.

ARAMCO NEEDS TO CHANGE STRATEGY

It's clear that Saudi Arabia is struggling with market share
in the two biggest importers in Asia, but this begs the question
as to why and what can the kingdom do about it?

It may be time for Saudi Aramco, the state-owned oil
company, to have a radical re-think about how it markets and
sells its crude.

Currently the Saudis overwhelmingly use term contracts to
supply major customers, using an official selling price, which
is calculated by using the Dubai market structure,
recommendations from customers and changes in the value of
refined products.

While customers can somewhat vary the amount of crude they
buy under the term contracts, there is very little scope to buy
Saudi crude on the spot market.

In fact, the Saudis are believed to have cancelled a rare
offer of spot cargoes in early October in expectation of an
output cut by OPEC, Reuters reported on Oct. 7, citing five
sources with knowledge of the matter.

The relative inflexibility of Saudi Aramco's marketing of
its crude oil may well be hindering its efforts to grow, or even
maintain market share in Asia.

If a Chinese or Indian refiner decide they want to buy
additional crude to what they have contracted, they can either
ask the Saudis to supply more or they can go to the spot market.

It's probably far easier to go to the spot market, and most
likely cheaper as well.

Because of the way the Saudis set their OSP, additional
demand from refiners feeds into a higher price for the following
months, as the OSP responds to the increased demand.

Buying crude in the spot market doesn't necessarily push the
Saudi OSP higher, therefore refiners have an incentive not to
ask Aramco for additional cargoes.

The purchase of oil for strategic storage by China, with
some by India as well, also argues against the current Saudi
strategy, as buyers will want maximum flexibility to purchase
when they deem prices to be cheap, or when the storage tanks
become available.

Saudi Arabia's major competitors in Asia appear to be far
more flexible in supplying oil, particularly Russia, which may
go some way to explaining why China is buying increased volumes
from its northern neighbour.

Overall, no matter what happens at the OPEC meeting on Nov.
30, Saudi Arabia is likely to continue to struggle to maintain
its market share among Asia's top importers.

It's hard to change the habits of a lifetime, but it seems
Saudi Aramco's marketing and pricing system is doing the company
no favours in a world where buyers have an increasing choice of
crude suppliers.

OTTAWA, Dec 9 U.S. Vice President Joe Biden said
on Friday he doubted whether Donald Trump could undo much of the
current administration's record on the environment because so
many green policies have firmly taken hold.

WASHINGTON, Dec 9 U.S. President-elect Donald
Trump is expected to pick U.S. Representative Cathy McMorris
Rodgers, a strong advocate of increased oil and gas development
who is skeptical about climate change, to run the Department of
the Interior, sources briefed on the matter told Reuters on
Friday.

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